OECD: Czech economy set for fifth sharpest downturn in world in 2020

In the wake of the coronavirus pandemic the economy of the Czech Republic is set for the world’s fifth largest downturn this year, according to a report published by the Organisation for Economic Co-operation and Development. Only the United Kingdom, Italy, Spain and France will be harder hit in 2020, the OECD expects.

Illustrative photo: Gerd Altmann, Pixabay / CC0

According to the OECD, Czech gross domestic product (GDP) will contract by 9.6 percent this year. This should be followed by a recovery in 2021, when the country’s economy will expand by 7.7 percent.

However, if a feared second wave of the Covid-19 epidemic were to materialize later in the year, causing further economic pain, then Czech GDP would fall by a full 13.2 percent and next year’s recovery would only be to the tune of 1.7 percent.

The chief economist of the Natland Group, Petr Bartoň, told the news site Novinky.cz that there were three reasons the Czech Republic could expect such a sharp economic downturn in 2020, with the first being that the country had enjoyed relatively healthy growth last year, meaning its economy is now falling from a greater height.

Petr Bartoň

The second factor is that the country’s slowdown actually got underway before the coronavirus crisis hit, at the end of last year. Mr. Bartoň told Novinky.cz that growth had decelerated quickly and inflation had grown.

At the start of this year investment had fallen by almost 10 percent, the second highest decline in the whole of the European Union.

When Covid-19 hit the Czech economy was already in a declining phase of the cycle and these factors are now multiplying, he said.

The third factor, Mr. Bartoň said, was the form of quarantine adopted by the Czech government in order to contain the spread of the coronavirus; the Czech Republic opted for one of the most restrictive forms of quarantine possible, he told Novinky.cz.

Photo: Michael Lovitt, Flickr, CC BY-NC-ND 2.0

In addition, the Prague’s government compensation scheme for losses stemming for the lockdown is lagging far behind similar programmes in other states when it comes to actually delivering funding.

At the same time, fear of continued restrictions is impacting consumers, who are afraid to go shopping at present, the economist said.

Earlier this week the Czech government approved a CZK 500 billion budget deficit for this year, which is more than 10 times the figure originally planned for 2020.

It was the third time the cabinet moved to increase the budget deficit since the current crisis began.